B1 Flashcards
primary role of an entity’s board of directors
- safeguard company’s assets
2. maximize shareholder return
Liability for Unlawful Distributions
- paying dividends when the corporation would not be able to pay its debts as they became due
- total assets would be less than its total liabilities
limitation on director indemnification
- bad faith
* unethical
Are directors individual agents?
no
authority of officers
actual and apparent authority
largest change from SOX
- enhanced disclosures
- audit committee
- CEO & CFO representations
types of liability for CEO & CFO
*civil and criminal liability
CEO/CFO pay for a restatement and must reimburse the issuer if material noncompliance is found
principal stockholders
> 10% ownership in the company
*related parties
Section 404 of SOX
*assessment of internal controls
Who is in charge of enhanced review of periodic disclosures?
the SEC
What is the purpose of the COSO framework?
to help management obtain an initial understanding of what constitutes an effective system of internal control
Elements of an Effective System of Internal Controls
- more than adherence to policies
- use of judgment
- PRINCIPLES-BASED approach
- should extend beyond financial reporting
Three Categories of Objectives under COSO Framework
O perations
R eporting
C ompliance
5 Components of Internal Control
- Control Environment
- Risk Assessment
- Existing Controls
- Monitoring
- Information and Communication
Elements of Control Environment
"EBOCA" E thics and integrity B oard independence and oversight O rganizational structure C ompetence A ccountability
Risk Assessment Elements
“EAR”
E vent ID
A ssess risk
R espond to risk
Monitoring Elements
*assessing the quality of internal control performance AND taking the necessary corrective actions
Existing Control Activities Elements
- detective or preventative
* technology controls, control activities, policies and procedures
An effective system of internal controls requires
internal controls that are both
PRESENT & FUNCTIONING
major deficiency =
may not conclude that it has met the requirements for an effective internal control system
What level of assurance do internal controls provide?
reasonable assurance
Enterprise Risk Management definition
*balances risks and returns as well as efficiency and effectiveness
Strategic Objectives of ERM
"SORC" S trategic O perations R eporting C ompliance
Components of ERM (8)
"IS EAR AIM" I nternal environment S etting objectives E vent ID A ssess risk R espond to risk A ctivities (control) I nformation and communication M onitoring
Internal Environment for ERM
"EBOCA HR" E thical values and integrity B oard oversight O rganizational structure C ommitment to competence H uman resources standards R isk management philosophy R isk appetite
Two things to look for in event identification
POSITIVE AND NEGATIVE events
Inherent Risk vs. Residual Risk
- inherent = risk without management action
* residual = risk after management action
3 Assessment Techniques for Risk Assessment
- Benchmarking
- Probabilistic Models
- Non-probabilistic Models (opinion; outcome of lawsuit)
Possible Risk Responses
- Avoidance (terminate the risk)
- Reduction (mitigate; invest)
- Sharing (insurance)
- Acceptance (no action)
How should risk be considered?
*on an entity-wide (portfolio) perspective
Information Quality Factors
- timely
- current
- accurate
Monitoring Components
- ongoing monitoring activities
- separate evaluations
- reporting deficiencies
Measurements of Performance should be both
*financial and nonfinancial
Total Factor Productivity vs. Partial Productivity
- (output)/(total costs)
2. (output)/(specific quantity of input)
Control chart =
*goalpost conformance
Pareto Diagram
- histogram
* shows cumulative and most frequent quality control issues
Cause-and-Effect Diagram
- fishbone
* used to identify the sources of the problem
Characteristics of Effective Performance Measures
- promote the achievement of goals
- objective and easily measured
- understood by the employee
Marketing Practices and Methods
- Transaction Marketing - price
- Interaction-Based - repeat business/loyalty discount
- Database Marketing - segment and target groups
- E-marketing - internet
- Network marketing - relationships and referrals
Performance Incentives & Compensation
- Sales-volume-driven compensation
2. Customer satisfaction and quality measures
Types of Bonus Plans
*fixed and variable
Cooperative vs. Competitive Plans
Cooperative = stock options Competitive = commissions
Cost Object
*the item or process for which a separate cost must be computed
Freight in vs. Freight out
*inventory/product vs. selling cost
Prime Cost
DL + DM
Conversion Cost
DL + MOH
Cost Drivers
*relationship in which manufacturing overhead will be applied
In the long-run, all costs are
VARIABLE
Types of Costs (behavior)
- variable
- fixed
- semi-variable
How are costs allocated under job costing?
*allocated sequentially as it moves through the manufacturing process
Manufacturing Overhead
Credit Balance = favorable = overapplied
Debit Balance = unfavorable = underapplied
Equation for Production Report
BI + Started (Transferred In) = EI + Transferred Out
Two types of cost-flow assumptions
FIFO or Weighted Average
FIFO Equivalent Unit Calculation
- cost to complete BI
- costs added to started and completed
- cost in ending inventory
ONLY COSTS ADDED
Weighted Average Equivalent Unit Calculation
- costs in units completed
- cost in ending inventory
TOTAL COST
Normal Spoilage vs. Abnormal Spoilage
- normal = inventory
* abnormal = I/S - separate component of COGS
ABC Features
- multiple activity centers
- focuses on cost/benefit activities
- removes cost distortion
Split off Costs Allocation Methods
- volume relationships
- net realizable value
a. known at split-off
b. not known at split-off
By-products
- applied to main product as a reduction of common costs
or - miscellaneous income
